Roth Conversion and RMD
Hello,
I searched the forum for this, but it came up empty. I apologize if this question has already been addressed.
My father (75 years old) converted his traditional IRA into a Roth IRA this month. He did not take an IRA RMD for 2010 from this traditional IRA (which is/was his only IRA or 401k/403b).
Question 1: Was he supposed to take that first?
Question 2: If he did not take it and he was supposed to, how is this rectified?
Thank you,
Jim
Permalink Submitted by Anonymous (not verified) on Fri, 2010-04-16 18:55
[u]Question 1: Was he supposed to take that first?[/u]
Yes
[u]Question 2: If he did not take it and he was supposed to, how is this rectified[/u]
The IRS method for rectifying this is to remove the RMD from the Roth as an Excess. This means that the amount, adjusted for earnings or losses from the whole Roth plan, will be removed. It does require extra tax reporting so is a bit of a hassle. Earnings, if any, are taxed with the principal. If there are losses, less needs to come out – I guess one positive thing. This needs to be done by Oct 15, 2011 to avoid penalties.
pko
Permalink Submitted by Jim Shope on Fri, 2010-04-16 20:54
OK, that makes sense. It kind of works the same way, then, as if someone made a contribution to a Roth and then found out that they made too much money and had “undo” it, right?
Thank you for your help,
Jim
Permalink Submitted by Anonymous (not verified) on Fri, 2010-04-16 21:06
Yes. Technically the RMD was taken (distribution), but cannot be rolled over to a Roth, as in “rollover contribution.”
pko
Permalink Submitted by Alan Spross on Fri, 2010-04-16 21:22
Correct. What you have here is a situation where the RMD was actually satisfied by the conversion, but RMDs are not rollover eligible. That created a partially failed conversion to the Roth IRA. But rather than recharacterizing the excess amount back to the TIRA, just have the Roth custodian treat it as an excess regular contribution, do the earnings calculation, and distribute the appropriate amount.
Even if he plans to report his 2010 conversion in 2011 and 2012, he should report the RMD income in 2010 as well as any earnings allocated to the RMD amount while in the Roth IRA. The remainder of the conversion can be split between 2011 and 2012. Forms completion for 2010 conversions is pending revision of the 8606, so cannot be specific about reporting until the 2010 1099R forms are processed and the IRS develops the 2010 version of Form 8606.
Permalink Submitted by Jim Shope on Mon, 2010-04-19 14:50
OK, thank you guys. I was reading an article in Investment News where Ed Slott was interviewed and he mentioned that the RMD could not be rolled over. He also said that it would be a common mistake. He just did not give the details on how to undo it.
Take care,
Jim